Phase 1 - Getting Data from Businesses to Onboard Them - What's Moving the Needle?

Picking up from my last post which started with the three major phases of onboarding a new business, I wanted to go a little deeper on the existing and new solutions to help with the process. Just to recap, there are three distinct phases:

1. Data collection
2. Data verification
3. Compliance review

I'm starting with Data Collection today, and I'd love to get more perspectives on what's working and what's truly broken with the way that we collect data from businesses to onboard them today.

Today, almost every platform is collecting data from businesses in their own unique way.? They are primarily asking for the same data and documentation as everyone else, but given the lack of a trusted business identity, there is really no other way to get this information from a business.? As a platform, you just have to ask and wait until the business provides it to you.? It's an insanely tedious process that frustrates the business who has to grab all of the right information that the platform needs (and what they believe/hope the platform wants), enter it into an application form and then wait to hear back on whether they have been approved, declined or need to provide more information.? And ultimately that pain the business experiences also translates into abandoned applications and slower time to revenue.

The reality is that there are not a ton of great third party solutions in the market that allow a platform to collect data and then send the data for verification.? The reasons for the lack of solutions are varied, but the reality is that most businesses don't want to outsource their collection flow given that it's typically their first touch point with a potential new customer.? Through a number of sales and marketing efforts, the platform has finally brought a prospect to sign up, and most platforms want to make sure that this initial experience gives the best impression possible to close the deal and start generating revenue.?

Current Options

Having said that, there are two types of companies that exist to help solve the problem around data collection.?

Onboarding as a Service (OaaS)

The first group is an Onboarding as a Service (OaaS) offering similar to what we see with NMI's TurboApp, Prove Identity's Pre-Fill Solution and OnRamp.? These are essentially workflow tools which map back to the data elements that a platform wants to capture.? Typically, the service provider will go back to data verification vendors on the backend to help verify the collected data for a more fully vetted application. Most of these solutions work really well for identifying individuals (especially for companies who do have the resources to build themselves), but not as seamlessly as with identifying businesses. Businesses are inherently more complicated with different corporate structures and multiple beneficiary owners who sit under the business. Getting clean workflows that don't result in application drop off or miss important details for the platform typically requires customization, and the value that these providers can extract is limited if it's not a relatively straightforward process. In addition, most large platforms have already built application workflows, and while they can often be somewhat clunky, it's hard to justify getting rid of a custom onboarding product when it works well enough.

Business Credit/Identity for Small Businesses

The second group of startups looking at data collection like Hansa, Credibly and Nav contemplate capturing data from the business first rather than on behalf of a platform. The intention here is to do two things at once. Provide a small business the ability to manage their own business identity and take control of their credit profile similar to what an individual might do at CreditKarma. Once the small business has started contributing or amending their profile, these services enable that small business to get access to one or more financial service more seamlessly and with a higher rate of approval.

In general, most businesses don't care about their credit profile as much as individuals do, and they can always go to Dun & Bradstreet CreditSignal, Experian or Equifax for a free credit report. But business do care about their time and getting approved without having to individually apply to multiple providers, so there is value here as long as the small business being targeted is in the right moment where they need to apply to many services at the same time.

Analysis

These are both pretty solid ways to collect data and build a repository of business profiles, but here's my take on what works and what doesn't if you're building one of these companies as a service provider for data collection.

Onboarding as a Service as a Business Model

Onboarding as a Service (OaaS) offerings are primarily offloading the need to build a workflow tool in-house. And it makes a lot of sense at the start. If you are a brand new platform who will need to onboard a number of businesses, you may make the decision that you don't want to waste engineering resources building a non-core product offering. I can, of course, make the case that a faster more efficient onboarding experience is actually a revenue driver, but for most businesses it's mainly looked at as a cost driver. And the reality is that compliance focused tools are always the last to get any budget or time on a product roadmap, so inherently these types of solutions are valued less. And that means that there is a ceiling on what you can charge for these types of tools. There's typically a monthly or annual minimum (typical minimums can range from $15k to $30k) with a per application charge between $20 and $40 to meet those minimums. The reality is that most early stage platforms are likely not boarding 75 to 100 businesses per month, so it's more of an accepted cost to get things moving.

As most platforms mature, they will see the value in owning their application flow - both to improve the customer experience as well as to save money on what continues to be seen as a cost driver. In order to capture the most revenue while a business needs a plug and play solution, it's also important for the OaaS provider to onboard entities as often as possible. The reality is that there is almost always more flow around verifying an individual over a business, so most OaaS providers include both individual and business onboarding flows.

Overall, OaaS offerings do have a clear market to sell to, but the long term value is likely low given the point at which platforms need this service and when they will likely graduate. They have a hard time charging subscription fees or hefty one time application fees simply because they are solving for an efficiency problem on the cost side of the equation.

Business Credit/Identity as Business Model

These solutions are intended to provide small businesses access to view and augment their credit profile while offering them access to financial products similar to a CreditKarma model. The reason that CreditKarma or Experian works well is that individuals actually care about their credit score, and so they come to the website for that first. From there, they get introduced to products and services that match their credit profile.

On the business side, it turns out that it's relatively hard to get a business to care about their credit profile or their business identity. What the three companies that I mentioned have figured out though is that businesses do care about their credit profile when they need money. So instead of starting with helping to manage a business identity, these service providers connect businesses to lending options through a single interface. This can be viewed more akin to an online broker like a health insurance broker. Being an online broker for a financial service allows you to collect lead gen or affiliate revenue for sending over customers, and like any broker service there can be a decent amount of money to be made depending on how many leads you can send and the value that the financial service can extract from that lead over time.

The bigger goal for these services is to get to that singular business identity layer that I've been talking about over the last few posts. However, when you're just focusing on a limited need, like being an online lending broker, it becomes really hard to grow a network where businesses see the service as a place to manage their identity/credit profile and the general population of regulated platforms also sees enough businesses on that network who would be valuable to them.

Overall, these types of companies will do well, if they can connect to the right businesses at the right time who need the services that they are offering. The ability to refer quality leads has been a true and tested way to make money both online and offline which is why brokers exist. However, if the larger goal is to help businesses manage their business identity/credit so that they can use it to make the application process easier across many different types of services, that requires a different incentive structure that hasn't yet been pinpointed by the existing players.